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17) The scoring models have an output that is strictily a relative measure while profitability models most of the times allow definitely go or no go decisions. Scoring models allow many criterias to be used in order to make a decision including profitability models while these profitability models ignore all nonmoneaty factors except risk. Is recommended to use scoring models for big projects where budget is not the main constraint while profitability models are used when budget is prioritized.(6 pts) Problems, pgs. 67-68 2, 3, 5 (just problem 3), 6, 72) Payback period = $200,000/ $30,000 = 6.7 yearsAverage rate of return = $30,000 / $200,000 = 15%3) At an interest rate of 24%InvestmentYear 1Year 2Year 3Year 4CashFlow$(75k)20k$25k$30k$50kPVIF11.21.441.7282.0736PV$(75k)$16,667$17,361$17,361$24,113NPV$5025)Discounted Cash Outflow$75,000Discounted Cash Inflow$75,502
Profitability Index1.0076)YearNet Cash FlowPVIFPV 0-$65,0001-$65,0001$20,0001.2$16,6672$25,0001.44$17,3613$30,0001.728$17,3614$35,0002.0736$16,879Yields an NPV of $3,2687)TOTAL SCORESSCOREABCConsulting costs204060Acquisition time406020Disruption201030Cultural differences303020Skill redundancies201010Implementation risks255075Infrastructure202020TOTAL175220235Based on this, option C hast the highest score which suggests that this should be the best option.
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Harshad number, Harry Connick, Jr., Project Selection Process, profitability models